58725 Jeff Bauman
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August 27 th , 2012 Mr. David Stawick Secretary of the Commission Commodity Futures Trading Commission Three Lafayette Centre 1155 21 st Street NW Washington, DC 20581 Re: Clearing Requirement Determination Under Section 2(h) of the CEA; RIN 3038- AD86 Dear Mr. Stawick R.J. O’Brien appreciates the opportunity to comment on the recent proposal of the regulations to establish which classes of credit default swaps and interest rate swaps will be required to be cleared by certain market participants who trade various contracts cleared by a derivatives clearing organization registered with the commission. R.J. O’Brien is the largest independently owned futures clearing merchant and has been a part of the futures industry since the early 1900s. Over this span of time, our firm has witnessed and persevered through a nu mber of financial catastroph es. While R.J. O’Brien has always been diligent with its own risk management practices, we believe the components of centralized clearing and p rice discovery in which the futures markets operate have been key elements to our l ong term existence. Furthermore, we feel these attributes are key components to minimizing systemic financial risk. It is evident to us the Dodd/Frank Act is trying to implement some these elements the futures industry has employed for years. We strongly support the implementation of a centralized clearing requirement which has already proven effective in today’s futures markets. Perhaps the best argument wo uld be to convey our own experience during the fi nancial crisis of 2008. As the credit market s began to deteriorate in late 2007, R.J. O’Brien’s fixed Income division had a large number of their accounts file for bankruptcy. These accounts had billions of dollars of interest rate futures contracts on our books. Because o f real time pricing, posting of margin, and the liquidity the futures market provided, our firm did not lose a dollar from these closed businesses and the futures positions were covered in an orderly fashion.
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August 27th, 2012
Mr. David Stawick Secretary of the CommissionCommodity Futures Trading CommissionThree Lafayette Centre1155 21st Street NWWashington, DC 20581
Re: Clearing Requirement Determination Under Section 2(h) of the CEA; RIN 3038-AD86
Dear Mr. Stawick
R.J. O’Brien appreciates the opportunity to comment on the recent proposal of the
regulations to establish which classes of credit default swaps and interest rate swaps willbe required to be cleared by certain market participants who trade various contractscleared by a derivatives clearing organization registered with the commission.
R.J. O’Brien is the largest independently owned futures clearing merchant and has been a
part of the futures industry since the early 1900s. Over this span of time, our firm haswitnessed and persevered through a number of financial catastrophes. While R.J. O’Brienhas always been diligent with its own risk management practices, we believe thecomponents of centralized clearing and price discovery in which the futures marketsoperate have been key elements to our long term existence. Furthermore, we feel theseattributes are key components to minimizing systemic financial risk. It is evident to us theDodd/Frank Act is trying to implement some these elements the futures industry hasemployed for years.
We strongly support the implementation of a centralized clearing requirement which hasalready proven effective in today’s futures markets. Perhaps the best argument would be
to convey our own experience during the financial crisis of 2008. As the credit marketsbegan to deteriorate in late 2007, R.J. O’Brien’s fixed Income division had a largenumber of their accounts file for bankruptcy. These accounts had billions of dollars of interest rate futures contracts on our books. Because of real time pricing, posting of margin, and the liquidity the futures market provided, our firm did not lose a dollar fromthese closed businesses and the futures positions were covered in an orderly fashion.
7/30/2019 58725 Jeff Bauman
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Centralized clearing and centralized price discovery provide the transparency andliquidity that all financial market participants deserve. In addition this, it levels thebarriers to entry thus increasing competition which is a positive outcome for the end user.We urge the commission to implement the clearing mandate as soon as possible. It willimprove the financial industry’s credibility and show the rest of the world we are serious
about improving the financial safety of our markets.
The mandate covering OTC products that are currently being cleared is a logical andpragmatic approach in migrating bilateral markets to central clearing. The interest rateswaps products and credit index products included in the clearing requirement all havehigh liquidity and large outstanding notionals (LCH has $300 trillion of rates contractsregistered). Moving this large and currently unregulated market to central clearingallows for increased competition from many new market entrants and will reduce thesystemic risk that is inherent in privately negotiated opaque markets.
Regards,
Jeff Bauman-Managing DirectorFixed Income GroupR.J. O’Brien & Associates
